Wall Mart – Bharti Retail JV

1. Rise in Demand in organized retail consumption due to income factor :

In economics, the income effect is the change in consumption resulting from a
change in real income. The income effect is the phenomenon observed
through changes in purchasing power. It reveals the change in quantity
demanded brought by a change in real income (utility).
Due to Demographic factor : Major driver include large number of youths with
a median age of 24 years., growing number of working women, many nuclear
families living in urban cities and boom in opportunities in service sector. This
shift in demographics led to an increase in consumer purchasing power and
higher consumption spending in India’s retail market.
Income Elasticity measures the responsiveness of demand due to an increase
or decrease in consumer income. Branded apparel can be classified as
“Luxury Goods” - These are goods whose consumption increases an amount
larger than an increase in income.

2. The key success factors are driving supplier prices down, purchasing in great
volumes, and keeping overhead and manufacturing costs low. Wal-Mart is
able to purchase goods in such high volumes from their suppliers that they
effectively drive the wholesale prices down, with a greater margin for mark-
up. This serves not only a greater economy of scale, but has a profound
effect on supplier competition for Wal-Mart supply contracts.

3. No doubt Wal Mart has challenges on terms of meeting the cost

competitiveness due to number of infrastructure and governmental policies
issues in India. However with the scale of business that wal mart operates
and it can mitigate the overheads they will incur with the quantity of
purchase , using their efficient supply chain management , systems etc. The
demographic and Income shift suggests the ample growth in retail industry
and hence in long run it should have profitable business.

4. In US Wal Mart offered better discounts than its competitors and drove sales
revenue through larger volumes. Wal- Mart adopted approaches such as
offering discounts up to 10% on 4 key items per category for and average of
75 days. It was able to offer upto 4% and in some cases 10% pricing
differentials compared with its competitors in most markets.
While in India Wal Mart was not allowed per government policy to sell locally.
Hence they made 2 separate agreement a) 50-50 venture for back-end
supply chain management and b) whole sale cash –n- carry operations. Main
focus was to utilize it’s supply chain management and logistics expertise in
India retail market.

5. Though the retail industry in India is estimated at about US$ 300 billion and
is expected to grow to US$ 427 billion in 2010 and US$ 637 billion in 2015.
 The early mover advantage can be determined by following factors :
Steep competition faced from local playes – especially Reliance retail.
How well Wal Mart achieves its economies of scale on personal consumer
products and uses its cost efficient supply chain and sourcing network so that
the cost savings are passed on the end consumer through its trademark
"every day low price" strategy.
Political pressure – left parties insisted that the government should look into
the matter to stop the "backdoor entry"of Wal-Mart into India.

6. Not all “mom & pop store” owners are worried about their future, some are
quite overjoyed at the rise in real estate prices that the retailing boom has
brought about and are all to happy to lease out their premises to modern
format stores. One of the biggest problems that the fledgling retail industry is
facing is the severe shortage of retail space within cities, especially in central
areas, where these stores are already established. So instead of competing
with the organized retailer, these storeowners are opting to lease space to
them, giving them a readymade market and local customer base.